THERE WILL BE NO ECONOMIC DIVIDEND FROM BREXIT

PETER JONES

Despairing of the heaven versus hell extremes of the national Brexit debate, it was a real pleasure to listen to two distinguished economists dispassionately dissecting what’s at stake in a Royal Society of Edinburgh seminar last week. Real issues, real evidence with which to judge them, and a pretty clear conclusion.

Anton Muscatelli, a macroeconomist who is now principal of Glasgow University, and Ronald MacDonald, professor of macroeconomics and international finance at that university’s Adam Smith Business School, concentrated on trade, the economic heart of the debate.

That’s because, Prof MacDonald said, Britain’s economy is very open (ie dependent for success on trade) with total trade (exports plus imports) equivalent to 60 per cent of GDP.

By contrast, US trade is equal to only about 20 per cent of US GDP. So, because our domestic market is relatively small in world terms, increasing exports is critical for growth.

Even Brexiteers acknowledge that joining the then Common Market in 1973 boosted British trade. David Davis, a pro-Leave Conservative MP, said in a recent speech: “Before we joined, our share of the European market was pathetic, at about 4 per cent. After we joined, over about a decade and a half, it doubled, to 8 per cent.

“But since then,” he adds, “It has halved again to less than the 4 per cent we started with. After 40 years in Europe we are no better off than when we started.”

This, however, is not even a half-truth, as it ignores the huge expansion of the EU market, particularly the accession of former eastern European countries – markets which Britain has been poor at exploiting in comparison to the French, Germans and Italians.

Prof Muscatelli put this issue more objectively. “In the two decades up to [1973], UK trade with the original six signatories of the Treaty of Rome was growing, albeit slowly, from about 13 per cent to 21 per cent. In contrast, in the 20 years after accession, the percentage of trade with the EU6 more than doubled from 21 per cent to 44 per cent.”

In other words, any failure to increase the British share of the EU market has not been because of the EU, but because British businesses have failed to exploit the opportunities of the enlarged market that the original EU states have seized.

Mr Davis’ central argument, however, is that the EU is not the future for trade that it once was. Freed from the EU, he argues, Britain would be able to strike trade deals a lot more quickly than now under the constraints of being part of an EU deal that has to be agreed by 28 nations.

Why, he says, Chile, a tenth of the size of the UK economy, has negotiated trade deals with about 10 times more (by value) of the world economy then the EU, and in a matter of months instead of the years the EU takes.

What he neglects to mention is that Chile is the world’s leading producer of copper, its output being more than the next five biggest producers combined. As copper is vital to economic development, it’s no wonder that the likes of China and India were desperate to do deals with Chile.

It isn’t clear to me what equally vital commodity, goods, or service Britain produces that makes it an equally attractive trade partner. And as Prof MacDonald observed, 85 per cent of UK trade is with countries covered by an EU agreement and deals now being negotiated (such as with the US) will cover much of the rest.

Not only is there no Brexit dividend, the opportunity for it doesn’t exist.

Peter Jones is a freelance business and economics journalist based in Edinburgh, writing mainly for The Times and The Economist